Commodity Murabaha (Tawarruq)
Tawarruq is the process of purchasing a commodity for a deferred price and selling it to a third party for a spot price to obtain cash. This is typically done in a matter of minutes through an existing Shariah-Compliant commodity market. It is designed to cater for the needs of getting cash in meeting various commitments; it can be done between the Banks as liquidity management too and with customers who need cash. Repayment can be up to 6 years as well. KCB carries out this arrangement with both local and foreign markets such as Bursa Suq Al-Sila (BSAS) depending on need and type of transactions to be performed.
Applications
Interbank
Facilitate transactions between banks.
Restructure
Restructure of existing Financing Contracts.
Takeovers
Takeover of facilities from other banks either conventional/Islamic financing.
Cash
Customers in need of cash who cannot be assisted using other non-cash Islamic Financing Contracts.
How it works*
- KCB purchases from supplier A based on amount needed by customer and pays sale price on spot (1st Sale).
- After owning the commodities, KCB will sell them to the customer based on Murabaha (cost + margin) to be paid back on deferred basis (2nd Sale).
- After owning the commodities, Customer (or through their agent which can be KCB) sells them to Supplier B and will be paid the same price immediately to obtain cash (3rd Sale).
